Lion Q1 Trading Update

Lion today announced its trading update for the quarter ended 31 December 2012.

26 April 2013

Lion today announced its trading update for the quarter ended 31 December 2012 in conjunction with Kirin Holdings’ first quarter announcement. The first quarter trading update reflects the three months to 31 December 2012 for all Lion business units.

Lion continues to pursue its strategy of investing in its people, brands and production assets to drive sustainable results in the long term.

Lion CEO Stuart Irvine said: “While consumer sentiment in our key geographies remains relatively subdued, we have seen good progress in our Australian Beer, Spirits & Wine business, as the beer market decline has started to slow and international brand owners have chosen to partner with Lion.

“Our Dairy & Drinks business operates in a highly competitive environment with discounting on white milk, juice and everyday cheese impacting margins. Lion has invested significantly in a range of efficiency initiatives and expects to realise the benefits of past site rationalisation during FY13, however we are still a considerable distance from making an acceptable return, and this cannot be delivered by a focus on costs alone.

“Since the conclusion of the quarter it has also been confirmed that the Coles private label milk contracts in Victoria, NSW and South East Queensland will move from Lion to Murray Goulburn and Norco in July 2014. Previous experience demonstrates that changes in these contracts can cause significant disruption for farmers, and we are still in the process of assessing the impact on our business and the most appropriate way forward”.

Beer, Spirits & Wine

Australia

While the beer market remained challenging with volumes down 4.6 percent on an annualised basis, the decline has started to slow, with quarterly volumes down 2.8 percent[1].

With volume from new international premium and craft brands now included in Lion’s portfolio, volumes increased 14 percent. Improvements in mix from resulting portfolio premiumisation, as international premium and craft brands were added, and a consistent performance from Lion’s pre-existing portfolio increased revenues 26.3 percent to $634.9 million.

Australia’s leading international premium brand, Corona Extra, recorded its strongest performance to date, gaining a share point and growing ahead of the category during the quarter[2]

James Squire and Little Creatures, Australia’s number 1 and 2 craft brands, continued to flourish, both growing volume ahead of the category and increasing volume share[3].

Lion’s core trademarks also performed well, with XXXX GOLD holding its position as the largest beer brand in the country on an annualised basis both during and since the conclusion of the quarter[4]. Contemporary brands Hahn Super Dry and XXXX Summer Bright Lager both grew volume and share in the quarter[5].

New Zealand

As competition intensified and the total New Zealand beer market continued to contract, down 3.1 percent for the quarter[6], Lion’s Beer, Spirits & Wine division in New Zealand saw volumes decline 5 percent versus the previous year.

Through growth in wine and cider and improvements in mix Lion was able to limit the volume decline impact on revenue, with revenues increasing 7 percent to $NZ 217.8 million.

While challenging market conditions persisted, the premium and craft beer segments continued to perform well. Becks, Oranjeboom and Budweiser were standouts, while Speight’s Distinction gained a solid 29 percent in value and cemented Lion’s lead in the popular craft segment during the quarter[7].

Pinot Gris, Pinot Noir and Methode were the fastest growing wine segments in the quarter and Lion saw robust performances from Huntaway and Saints, while Daniel Le Brun ranked as the second largest contributor to value growth in the Methode segment[7]. In spirits, whiskey remains the mainstay of growth in the category, with Johnnie Walker growing value by 8.4 percent and gaining value share [7].

Dairy & Drinks

During the quarter the market remained highly competitive in core categories such as milk, juice and cheese, with continued discounting, product rationalisation and expansion of retailer-owned-brands. Lion also proactively exited some unprofitable contract volume, primarily in the convenience channel. In this environment Lion’s Dairy & Drinks business delivered a revenue decline of 6 percent to $631.8 million and remains a long way from achieving an acceptable return on invested capital, with revenue pressure offsetting efficiency gains.

Despite these challenging conditions, dairy beverages continued to perform well, with Dare growing volume and value in the quarter . Lion’s share of yogurt also grew, driven by Yoplait, which underwent a brand refresh in 2012[8].

The launch of permeate free milk across Dairy Farmers and Pura has helped achieve a stabilisation of branded milk volumes since its launch last June, however lower price realisation in grocery and the sustained channel shift from non-grocery to grocery continues to crimp margins.

Lion remains focussed on innovation across its portfolio to drive value in the market, for the benefit of all players in the supply chain.

Lion brings together great household brand names including Tooheys, Dairy Farmers, XXXX, PURA, Hahn, Berri, Speight’s, King Island Dairy, Boag’s, Yoplait, Wither Hills and COON. We believe business success comes from investing in our people and brands and by constructively engaging our stakeholders. Lion employs over 7,000 people across Australia and New Zealand and delivers revenues in excess of AU$5 billion. In addition to direct employment, we make a significant contribution to the Australian and New Zealand economies. We are one of the region’s largest purchasers of agricultural goods and an integral component of the retail, hospitality and tourism industries. Our products accompany life’s sociable moments, whether it’s a family meal or good times at the pub with friends. Dairy, juice, soy and the responsible enjoyment of alcohol beverages are all part of a healthy lifestyle for many people and we aim to maximise the community wellbeing arising from the enjoyment of our products while playing a leading role in helping the community minimise misuse.